Common Commercial Disputes Queries – October 2021


By Gunjan Chhabra

Questions Answered in this Monthโ€™s CCDQ:

  1. ๐‚๐š๐ง ๐ฒ๐จ๐ฎ ๐ฌ๐ญ๐ข๐ฅ๐ฅ ๐ง๐š๐ฆ๐ž ๐š๐ง ๐š๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐จ๐ซ ๐ข๐ง ๐ฒ๐จ๐ฎ๐ซ ๐š๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐ข๐จ๐ง ๐š๐ ๐ซ๐ž๐ž๐ฆ๐ž๐ง๐ญ?
  2. ๐‚๐š๐ง ๐ญ๐ก๐ž ๐‰๐ฎ๐ซ๐ข๐ฌ๐๐ข๐œ๐ญ๐ข๐จ๐ง ๐จ๐Ÿ ๐š๐ง ๐€๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐จ๐ซ ๐ข๐ง ๐’๐ž๐œ๐ญ๐ข๐จ๐ง 17, ๐›๐ž ๐๐ข๐Ÿ๐Ÿ๐ž๐ซ๐ž๐ง๐ญ ๐Ÿ๐ซ๐จ๐ฆ ๐ก๐ข๐ฌ ๐จ๐ฏ๐ž๐ซ๐š๐ฅ๐ฅ ๐ฃ๐ฎ๐ซ๐ข๐ฌ๐๐ข๐œ๐ญ๐ข๐จ๐ง?
  3. ๐–๐ก๐š๐ญ ๐ก๐š๐ฉ๐ฉ๐ž๐ง๐ฌ ๐ข๐Ÿ ๐š ๐๐ฎ๐š๐ฅ๐ข๐Ÿ๐ข๐ž๐ ๐€๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐จ๐ซ, ๐ฅ๐จ๐จ๐ฌ๐ž๐ฌ ๐ก๐ข๐ฌ ๐ช๐ฎ๐š๐ฅ๐ข๐Ÿ๐ข๐œ๐š๐ญ๐ข๐จ๐ง, ๐š๐Ÿ๐ญ๐ž๐ซ ๐ก๐ข๐ฌ ๐š๐ฉ๐ฉ๐จ๐ข๐ง๐ญ๐ฆ๐ž๐ง๐ญ?
  4. ๐ƒ๐จ๐ž๐ฌ ๐ญ๐ก๐ž ๐€๐ซ๐›๐ข๐ญ๐ซ๐š๐ฅ ๐“๐ซ๐ข๐›๐ฎ๐ง๐š๐ฅ ๐ก๐š๐ฏ๐ž ๐ญ๐ก๐ž ๐ฉ๐จ๐ฐ๐ž๐ซ ๐ญ๐จ ๐ข๐ฌ๐ฌ๐ฎ๐ž ๐ญ๐ก๐ž ๐ซ๐ž๐ฅ๐ž๐š๐ฌ๐ž ๐จ๐Ÿ ๐š๐๐ฆ๐ข๐ญ๐ญ๐ž๐ ๐š๐ฆ๐จ๐ฎ๐ง๐ญ๐ฌ, ๐ž๐ฏ๐ž๐ง ๐›๐ž๐Ÿ๐จ๐ซ๐ž ๐š ๐๐ข๐ฌ๐ฉ๐ฎ๐ญ๐ž ๐ข๐ฌ ๐š๐๐ฃ๐ฎ๐๐ข๐œ๐š๐ญ๐ž๐?
  5. ๐–๐กo ๐๐ž๐œ๐ข๐๐ž๐ฌ ๐ญ๐ก๐ž ๐š๐ฉ๐ฉ๐ฅ๐ข๐œ๐š๐ญ๐ข๐จ๐ง ๐Ÿ๐จ๐ซ ๐ญ๐ก๐ž ๐ข๐ง๐ญ๐ž๐ซ๐ข๐ฆ ๐ซ๐ž๐ฅ๐ข๐ž๐Ÿ: ๐“๐ก๐ž ๐‚๐จ๐ฎ๐ซ๐ญ ๐จ๐ซ ๐ญ๐ก๐ž ๐š๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐จ๐ซ?
  6. ๐–๐ก๐ž๐ง ๐๐จ๐ž๐ฌ ๐ญ๐ก๐ž ๐ฏ๐ž๐ง๐ฎ๐ž ๐จ๐Ÿ ๐š๐ง ๐š๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐ข๐จ๐ง ๐›๐ž๐œ๐จ๐ฆ๐ž ๐ญ๐ก๐ž ๐ฌ๐ž๐š๐ญ?
  7. ๐ˆ๐ฌ ๐ญ๐ก๐ž ๐๐ซ๐จ๐ฏ๐ข๐ฌ๐ข๐จ๐ง ๐Ÿ๐จ๐ซ ๐ƒ๐ž๐ฉ๐จ๐ฌ๐ข๐ญ ๐จ๐Ÿ 75% ๐จ๐Ÿ ๐ญ๐ก๐ž ๐€๐ฐ๐š๐ซ๐ ๐š๐ฆ๐จ๐ฎ๐ง๐ญ, ๐ฎ๐ง๐๐ž๐ซ ๐ญ๐ก๐ž ๐Œ๐’๐Œ๐„ ๐€๐œ๐ญ, ๐ฆ๐š๐ง๐๐š๐ญ๐จ๐ซ๐ฒ?
  8. ๐‚๐š๐ง c๐จ๐ฆ๐ฉ๐ฎ๐ฅ๐ฌ๐จ๐ซ๐ข๐ฅ๐ฒ ๐ซ๐ž๐ ๐ข๐ฌ๐ญ๐ซ๐š๐›๐ฅ๐ž, ๐›๐ฎ๐ญ ๐ฎ๐ง-๐ซ๐ž๐ ๐ข๐ฌ๐ญ๐ž๐ซ๐ž๐ ๐๐จ๐œ๐ฎ๐ฆ๐ž๐ง๐ญ๐ฌ, ๐›๐ž ๐ฆ๐š๐ซ๐ค๐ž๐ ๐ข๐ง ๐ž๐ฏ๐ข๐๐ž๐ง๐œ๐ž?
  9. ๐€๐ซ๐ž P๐ซ๐ž-๐š๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐ข๐จ๐ง ๐’๐ญ๐ž๐ฉ๐ฌ ๐ข๐ง ๐š๐ง ๐€๐ ๐ซ๐ž๐ž๐ฆ๐ž๐ง๐ญ, ๐Œ๐ง๐๐š๐ญ๐จ๐ซ๐ฒ?
  10. ๐‚๐š๐ง ๐ญ๐ก๐ž a๐›๐ข๐ญ๐ซ๐š๐ญ๐จ๐ซ’๐ฌ ๐๐จ๐ฐ๐ž๐ซ ๐†๐ซ๐š๐ง๐ญ ๐ˆ๐ง๐ญ๐ž๐ซ๐ž๐ญ, ๐›๐ž ๐œ๐ฎ๐ซ๐ญ๐š๐ข๐ฅ๐ž๐?

๐‚๐š๐ง ๐ฒ๐จ๐ฎ ๐ฌ๐ญ๐ข๐ฅ๐ฅ ๐ง๐š๐ฆ๐ž ๐š๐ง ๐š๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐จ๐ซ ๐ข๐ง ๐ฒ๐จ๐ฎ๐ซ ๐š๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐ข๐จ๐ง ๐š๐ ๐ซ๐ž๐ž๐ฆ๐ž๐ง๐ญ?

In Select Realty And & Ors v. Intec Capital Limited (Delhi High Court, single judge, decided onย  09.09.2021), the agreement between the parties contained a unique arbitration clause which was as follows:

โ€œ2.1 Any Dispute arising out of the Business Loan Agreement, shall be referred to a sole arbitrator, from amongst those listed in Schedule hereto, as per his/her availability, in the order of preference in which they have been set-out. The Parties consent to such appointment of arbitrator and agree that, upon reference of any Dispute to the arbitrator and acceptance by the sole arbitrator, no separate consent of the Parties will be required for the appointment.โ€

The schedule contained names of six persons, in order of preference.

When disputes arose between the parties, Intec sent notice of invocation to Select Realty, appointing the first person in this list as an arbitrator, which was in accordance with Clause 2.1. Consequently Select Realty simply chose not to participate in the arbitral proceedings, or to move any application, either before the arbitrator or before the Court, challenging the authority of the sole arbitrator to arbitrate.

Once the arbitral Award was passed by the Arbitrator, the Petitioner challenged the award under Section 34 of the #arbitration & conciliation Act, 1996, contending that the appointment of arbitrator was illegal as the arbitration clause was in teeth of Section 12(5) of the 1996 Act (Perkins Eastman Architects DPC v. HSCC (India) Ltd. AIR 2020 SC 59)

The Court observed as follows:

  1. The judgments being relied upon by the Petitioner, related to cases in which the right to appoint the arbitrator was preferentially in favour of one of the parties to the exclusion of other, or where the agreement did not provide any choice to the party, from the panel which was suggested by the opposite party.
  2. None of those cases related to a challenge (under section 34) to an award already passed.
  3. In the present case, the arbitration agreement does not confer exclusive jurisdiction on any one party to select/appoint/nominate the arbitrator from the panel contained in the Schedule. In fact the schedule was agreed between the parties.
  4. The parties themselves worked out the arrangement for appointment, by expressly stipulating that the arbitrator would be selected from the said panel by preferring a person, higher in the panel, to the ones below him and proceeding sequentially through the names.
  5. Thus, the Court held that in appointing the sole arbitrator in the present case, the Respondent had merely adhered to the arrangement provided in the arbitration clause. It was not a case where the Respondent exercised a unilateral choice regarding appointment of the arbitrator.

In view of the same, the challenge was defeated.

๐‚๐š๐ง ๐ญ๐ก๐ž ๐‰๐ฎ๐ซ๐ข๐ฌ๐๐ข๐œ๐ญ๐ข๐จ๐ง ๐จ๐Ÿ ๐š๐ง ๐€๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐จ๐ซ ๐ข๐ง ๐’๐ž๐œ๐ญ๐ข๐จ๐ง 17, ๐›๐ž ๐๐ข๐Ÿ๐Ÿ๐ž๐ซ๐ž๐ง๐ญ ๐Ÿ๐ซ๐จ๐ฆ ๐ก๐ข๐ฌ ๐จ๐ฏ๐ž๐ซ๐š๐ฅ๐ฅ ๐ฃ๐ฎ๐ซ๐ข๐ฌ๐๐ข๐œ๐ญ๐ข๐จ๐ง?

In, M/s Swajal Water Pvt. Ltd v. Indian Railway Catering and Tourism Corporation Ltd. (IRCTC)ย  (Delhi High Court, single judge, decided on 10.09.2021), Swajal had entered into a contract to Install Water Vending Machines, with IRCTC. There was a dispute between the parties regarding the payment of licence fee pursuant to the commissioning of the Vending machines, and the said question was referred to the Arbitral Tribunal which was constituted for considering this dispute.

During the pendency, IRCTC terminated the Contract. Swajal consequently, filed an application before the Arbitral Tribunal under Section 17 (interim measures) of the Arbitration & Conciliation Act, 1996 seeking stay on termination of the contract by the Respondent.

The contentions raised in the Section 17 application were centred around the issue of whether or not, the Contract was determinable.

The Arbitral Tribunal dismissed the said application on merits holding that the specific performance of the agreement cannot be granted as theย contract was determinable in nature.

An Appeal was filed under Section 37 against this Order of the AT (Impugned Order).

The relevant facts which the Court based its observations on, were as follows:

  1. The AT, by way of an email which was sent, after the impugned order had been challenged, had stated, that the dispute regarding the validity of termination of the Contract, was not one of the disputes referred to the Arbitral Tribunal. In the same email, the AT had asked the parties to constitute a new Tribunal for deciding the said dispute.
  1. After this email, IRCTC had even constituted a new tribunal to adjudicate the dispute regarding the termination of the contract.
  1. Clearly, any application under Section 17 seeking interim measure on termination, could only be in aid of its contention that termination of the Contract was illegal. Since the AT had already held it would not examine the said issue, it could not have examined Swajalโ€™s section 17 application, which was founded on the same contention of the illegality of the termination of Contract.
  1. Hence the AT acted beyond its jurisdiction (as per its own understanding also), in deciding the Section 17 application.

In view of the above, the Court set aside the above order of the AT, dismissing Swajalโ€™s Section 17 application.

๐–๐ก๐š๐ญ ๐ก๐š๐ฉ๐ฉ๐ž๐ง๐ฌ ๐ข๐Ÿ ๐š ๐๐ฎ๐š๐ฅ๐ข๐Ÿ๐ข๐ž๐ ๐€๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐จ๐ซ, ๐ฅ๐จ๐จ๐ฌ๐ž๐ฌ ๐ก๐ข๐ฌ ๐ช๐ฎ๐š๐ฅ๐ข๐Ÿ๐ข๐œ๐š๐ญ๐ข๐จ๐ง, ๐š๐Ÿ๐ญ๐ž๐ซ ๐ก๐ข๐ฌ ๐š๐ฉ๐ฉ๐จ๐ข๐ง๐ญ๐ฆ๐ž๐ง๐ญ?

It is often the case, that the arbitration agreement between the parties, provides for a specific qualification of arbitrators to be appointed.

In a case before the #SupremeCourtofIndia, Laxmi Continental Construction Company v. State of U.P. and Anr. (Decided on 20.09.2021), the #arbitration clause provided for the arbitrator to be, โ€œof the rank Superintending Engineer or higher, who have not been connected with the work under this contract.โ€ (To be kept in mind this was an arbitration under the 1940 Act).

When disputes arose, one Mr. M was appointed as arbitrator being the Chief Engineer, who had entered into Reference in 1992. Mr. M superannuated in 1995, and the arbitration was still continuing. Mr. M declared the award in 1998.

Two questions arose before the Supreme Court:

  1. Whether once an officer of the department has been appointed as an arbitrator considering the arbitration clause, will his mandate to continue the arbitration come to an end on his retirement (since he would no longer be qualified as per the Arbitration clause)?
  1. Whether continuance of the arbitration proceedings by such an arbitrator after his retirement can be said to be committing a misconduct by him?

The Court observed as follows:

  1. The only qualification for appointment as an arbitrator is that he should be the officer of the rank of Superintending Engineer or higher.
  1. Once such an officer is appointed as an Arbitrator, he continues to be the Sole Arbitrator till the arbitration proceedings are concluded unless he incurs the disqualification under the provisions of the Indian Arbitration Act, 1940.
  1. The arbitration clause does not provide anywhere that on the retirement of such an officer, who has been appointed as a Sole Arbitrator, he shall not continue as a Sole Arbitrator and/or mandate to continue arbitration will come to an end. (Reliance placed on Himalayan Construction Co. Vs. Executive Engineer, Irrigation Division, J&K and Anr., (2001) 9 SCC 359).
  1. The same objection had also been raised by the Respondents before lower court, when an application of extension of time for arbitration was being decided. The lower Court had overruled the objection and allowed the extension. The said order had attained finality, and it was not open for the Respondents to raise the same objection again.

In view of the same, the award passed by Mr. M as the #arbitrator was restored and upheld.

๐ƒ๐จ๐ž๐ฌ ๐ญ๐ก๐ž ๐€๐ซ๐›๐ข๐ญ๐ซ๐š๐ฅ ๐“๐ซ๐ข๐›๐ฎ๐ง๐š๐ฅ ๐ก๐š๐ฏ๐ž ๐ญ๐ก๐ž ๐ฉ๐จ๐ฐ๐ž๐ซ ๐ญ๐จ ๐ข๐ฌ๐ฌ๐ฎ๐ž ๐ญ๐ก๐ž ๐ซ๐ž๐ฅ๐ž๐š๐ฌ๐ž ๐จ๐Ÿ ๐š๐๐ฆ๐ข๐ญ๐ญ๐ž๐ ๐š๐ฆ๐จ๐ฎ๐ง๐ญ๐ฌ, ๐ž๐ฏ๐ž๐ง ๐›๐ž๐Ÿ๐จ๐ซ๐ž ๐š ๐๐ข๐ฌ๐ฉ๐ฎ๐ญ๐ž ๐ข๐ฌ ๐š๐๐ฃ๐ฎ๐๐ข๐œ๐š๐ญ๐ž๐?

In the case of Augmont Gold Pvt. Ltd. v. One97 Communication Ltd. (Delhi High Court, single Judge, decided on 27.09.2021), The #Arbitrator had allowed an application under Section 17 filed by One97, and directed Augmunt to pay a particular sum to One97.

The said decision was arrived at by the Arbitral Tribunal (AT) as it found the said amount to be admitted by the Petitioner.

The Petitioner filed an appeal under Section 37 challenging the above order, contending that the ATโ€™s order was vitiated as it did not examine the applicability of Order XXXVIII Rule 5 of the Code of Civil Procedure, 1908 (CPC), while ordering for issuance of security.

The Court observed as follows:

  1. Section 17(1)(ii)(b) specifically empowers the Arbitral Tribunal to secure the amount in dispute in an arbitration.
  2. The AT had based its order on the fact, the amount payableย to One97 stood admitted by Augmunt. The exercise of such power is analogous to Order XII Rule 6 (judgment on admissions).
  3. The findings were based on pleadings, ledger account of One97, and lack of any credible challenge whatsoever to the said admission. The AT on the basis of principles of Order XII Rule 6, held that Prima Facie, the amounts were admittedly payable.
  4. The ATโ€™s order was not based on the principles of Order XXXVIII Rule 5 (that Augmunt was attempting to defeat the award and would be unable to pay the final award, if any), but was rather based on admissions.
  5. The ATโ€™s direction to secure the admitted amount during pendency of arbitral proceedings, may not justify interference under Section 37 of the #arbitration & conciliation act, โ€œunless the finding of admission of liabilityย  on the part of the party who is asked to make the deposit is itself found to suffer from perversity or patent illegality.โ€

The only modification which the Court deemed fit from the above was, that instead of ordering payment directly to One97 (as per the ATโ€™s order), the parties consented that the admitted amounts be deposited with the Registrar General of the Court, awaiting the outcome of the proceedings.

In view of the above, the ATโ€™s Order, which had ordered the securing of admitted amount was upheld.

๐–๐ก๐จ ๐๐ž๐œ๐ข๐๐ž๐ฌ ๐ญ๐ก๐ž ๐š๐ฉ๐ฉ๐ฅ๐ข๐œ๐š๐ญ๐ข๐จ๐ง ๐Ÿ๐จ๐ซ ๐ญ๐ก๐ž ๐ข๐ง๐ญ๐ž๐ซ๐ข๐ฆ ๐ซ๐ž๐ฅ๐ข๐ž๐Ÿ: ๐“๐ก๐ž ๐‚๐จ๐ฎ๐ซ๐ญ ๐จ๐ซ ๐ญ๐ก๐ž ๐š๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐จ๐ซ?

In the case ofย CYFUTURE INDIA PRIVATE LIMITEDย v. Futuretimes Technology India Private Limited (Delhi High Court, Single Judge, decided on 17.09.2021), the Arbitral Tribunal had been constituted after the filing of a Petition under Section 9 of theย #arbitrationย & conciliation Act, 1996.

The question which arose was, whether the Court was obliged to keep hearing the Section 9 Petition, or was it obligated to refer the matter to the Arbitral Tribunal in view of the bar contained in Section 9(3).

The Court crystallised three principles:

  1. The proscription under Section 9(3) applies only before an application under Section 9(1) has been โ€œentertainedโ€. The bar is to โ€œentertainingโ€ the application. The expression โ€œentertainedโ€ has to be understood as โ€œtaken up for considerationโ€. Once the application has been taken up for consideration, such as where arguments are in progress or judgement reserved, Section 9(3) has no application.
  2. Where the bar applies, the Court has to examine whether the Section 17 remedy would be efficacious. There is no absolute prohibition on deciding the Section 9 application, even where the Arbitral Tribunal stands constituted.
  3. Where the Arbitral Tribunal stands constituted, however, the approach of the Court has to be circumspect. Unless there is some impediment in approaching the Arbitral Tribunal under Section 17, or where the remedy under Section 17 is rendered inefficacious for some clear and apparent reason, the prayer for interim relief ought, appropriately, to be relegated to the Arbitral Tribunal.

In the present case, the Court was yet to take up the applications for consideration on merits and ad-interim orders for protection had already been passed in favour ofย the Petitioner. Owing to the same the court disposed off the Petitions under Section 9 with liberty to the Petitioner to present those before theย #Arbitratoralready appointed.

In this case, the Court placed heavy reliance on the judgment of ๐€๐ซ๐œ๐ž๐ฅ๐จ๐ซ ๐Œ๐ข๐ญ๐ญ๐š๐ฅ ๐๐ข๐ฉ๐ฉ๐จ๐ง ๐’๐ญ๐ž๐ž๐ฅ ๐ˆ๐ง๐๐ข๐š ๐ฏ ๐„๐ฌ๐ฌ๐š๐ซ ๐๐ฎ๐ฅ๐ค ๐“๐ž๐ซ๐ฆ๐ข๐ง๐š๐ฅ 2021 ๐’๐‚๐‚ ๐Ž๐ง๐‹๐ข๐ง๐ž ๐’๐‚ 718, the previous post regarding which can be found here:ย https://www.linkedin.com/posts/gunjan-chhabra-2009b91b_supremecourtofindia-legalupdates-legalissues-activity-6846645717100974080-c9Gu

๐–๐ก๐ž๐ง ๐๐จ๐ž๐ฌ ๐ญ๐ก๐ž ๐ฏ๐ž๐ง๐ฎ๐ž ๐จ๐Ÿ ๐š๐ง ๐š๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐ข๐จ๐ง ๐›๐ž๐œ๐จ๐ฆ๐ž ๐ญ๐ก๐ž ๐ฌ๐ž๐š๐ญ?

P. Singla Constructions Pvt Ltd v. CONSTRUCTION & DESIGN SERVICES LIMITED (Delhi High Court, Single Judge, decided on 23.09.2021), was a Petition filed under Section 11(6) for the appointment of an arbitrator.

The arbitration clause noted that the Arbitration was to be held in accordance with Rules of ICADR, New Delhi, and the venue of such arbitration would be Lucknow.

The key question before the court was the distinction between venue and seat, that is whether, the seatย was New Delhi (as specified by Rules of ICADR, New Delhi) or whether it was Lucknow (venue).

The Court, observed as follows:

  1. Where the arbitration agreement provides that the arbitration proceedings, โ€œshall be heldโ€ at a particular venue, then that indicates that the arbitration proceedings would be anchored at such venue, and therefore the choice of venue, is also the choice of seat of arbitration. (Reliance placed on BGS SGS SOMA JV v. NHPC, (2020) 4 SCC 234).
  2. Once the parties designate the seat, only the courts governing the seat have exclusive jurisdiction to govern such arbitration proceedings and jurisdiction of all other courts stand ousted.
  3. Para 17 of ICADR Rules specified that place of arbitration shall be New Delhi or such other place where any of the Regional offices of ICADR is situated โ€œas the parties may agreeโ€.ย This meant that role of ICADR rules began only once the #arbitration commenced at the appropriate jurisdiction of law (Lucknow.)

In view of the same, the Court dismissed the application for appointment, as it was lacking in territorial jurisdiction.

๐ˆ๐ฌ ๐ญ๐ก๐ž ๐๐ซ๐จ๐ฏ๐ข๐ฌ๐ข๐จ๐ง ๐Ÿ๐จ๐ซ ๐ƒ๐ž๐ฉ๐จ๐ฌ๐ข๐ญ ๐จ๐Ÿ 75% ๐จ๐Ÿ ๐ญ๐ก๐ž ๐€๐ฐ๐š๐ซ๐ ๐š๐ฆ๐จ๐ฎ๐ง๐ญ, ๐ฎ๐ง๐๐ž๐ซ ๐ญ๐ก๐ž ๐Œ๐’๐Œ๐„ ๐€๐œ๐ญ, ๐ฆ๐š๐ง๐๐š๐ญ๐จ๐ซ๐ฒ?

This question arose before the #SupremeCourtofIndia in the case of Gujarat State Disaster Management Authority vs. Aska Equipments Private Limited (Decided on 08.10.2021).

A Petition under Section 34 of the #arbitration & Conciliation Act, 1996 read with Section 19 of the MSME Act, had been filed challenging an award passed by the #MSME Facilitation Council (MSEFC) under Section 18 of the MSME Act.

Section 19 of the MSME Act, requires the award debtor/petitioner to deposit 75% of the amount awarded by the arbitrator. However, the Petitioner in the case had failed to do so, and instead an application for waiver of pre-deposit had been preferred which was also dismissed.

Against the said dismissal, the Gujarat State Disaster Management (GSDM) had even preferred a writ petition. Once that failed before the High Court, they preferred the present appeal to the Supreme Court.

The Court observed:

  1. There was no other way for GSDM but to deposit the 75% award amount, as the requirement of deposit was mandatory. (Reliance placed on Goodyear India Limited v. Norton Intech Rubbers Private Limited, (2012) 6 SCC 345).
  1. The words “in the manner directed by such Court”, indicate only the discretion given to Court to allow the pre-deposit to be made, if felt necessary, in instalments.

On these terms the Appeal was dismissed.

๐‚๐š๐ง ๐œ๐จ๐ฆ๐ฉ๐ฎ๐ฅ๐ฌ๐จ๐ซ๐ข๐ฅ๐ฒ ๐ซ๐ž๐ ๐ข๐ฌ๐ญ๐ซ๐š๐›๐ฅ๐ž, ๐›๐ฎ๐ญ ๐ฎ๐ง-๐ซ๐ž๐ ๐ข๐ฌ๐ญ๐ž๐ซ๐ž๐ ๐๐จ๐œ๐ฎ๐ฆ๐ž๐ง๐ญ๐ฌ, ๐›๐ž ๐ฆ๐š๐ซ๐ค๐ž๐ ๐ข๐ง ๐ž๐ฏ๐ข๐๐ž๐ง๐œ๐ž?

This question came up before the #SupremeCourtofIndia in the case of Korukonda Chalapathi Rao v. Korukonda Annapurna Sampath Kumar (decided on 01.10.2021),

This case deals with an interplay between sections 17 and 49 of the Registration Act, 1908, the relevant portions of which are provided below for ease of reference:

Section 17 – Documents of which registration is compulsory

  • The following documents shall be registered, if the property to which they relate….namely:

(a)โ€ฆ

(b) other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immovable property;

(c)โ€ฆ(e)..

  • Nothing in clauses (b) and (c) of sub-section (1) applies to-

(I)โ€ฆ(iv).

(v)any document other than the documents specified in sub-section (1A)] not itself creating, declaring, assigning, limiting or extinguishing any right, title or interest of the value of one hundred rupees and upwards to or in immovable property, but merely creating a right to obtain another document which will, when executed, create, declare, assign, limit or extinguish any such right, title or interest; or

(vi)โ€ฆ(xii).

Section 49 – Effect of non-registration of documents required to be registered

No document required by section 17ย 1[or by any provision of the Transfer of Property Act, 1882 (4 of 1882)], to be registered shall-

  • affect any immovable property comprised therein, or
  • confer any power to adopt, or
  • be received as evidence of any transaction affecting such property or conferring such power,

unless it has been registered:

Provided that an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882 (4 of 1882), to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877 (3 of 1877)2,ย 3[***] or as evidence of any collateral transaction not required to be effected by registered instrument.]

In this case, two documents had been marked in evidence as exhibits by the Trial Court:

  1. Family Settlement Agreement (FSA)
  2. Receipt of Rs. 2,00,000/-

The Supreme Court observed as follows:

  1. Registration of an FSA is necessary only if the terms of the FSA are reduced into writing. Here a distinction should be made between a document containing the terms & recitals of a family arrangement made under the document, and a mere memorandum prepared AFTER the family arrangement had already been made.
  1. If the FSA is a mere memorandum prepared AFTER the family arrangement had already been made, then in such a case the memorandum itself does not create or extinguish any rights in immovable properties & therefore does not fall within the mischief of Section 17(2) of the #Registration Act, and is therefore not compulsorily registrable. (Reliance placed on Kale v. Dy. Director of Consolidation AIR 1976 SC 807)
  1. In this case, The FSA read โ€œwe and our brothers divided family properties and executed partition list dated 17.11.1980.โ€ Therefore FSA was a mere record of the past transaction & did not attract Section 17(1)(b) of the Registration Act.
  1. The impact of Section 17 and 49 is that even if a written FSA required registration & is unregistered, it could still be used as a corroborative piece of evidence for a collateral purpose, that is for showing or explaining the conduct of parties, or explaining the settlement already arrived at, and the parties receiving money in lieu of relinquishing their interest. (Reliance placed on Subraya M.N. v. Vittala M.N. (2016) 8 SCC 705 and Thulasidhara v. Narayanappa (2019) 6 SCC 409).
  1. Using for a collateral purpose in Section 49 means for any purpose other than that of creating, declaring, assigning, limiting or extinguishing a right to immovable property. (Reliance placed on K. Panchapagesa Ayyar and Ors. v. K. Kalyanasundaram Ayyar and Ors. AIR 1957 Madras 472).
  1. In the present case the Plaintiff had admitted the oral partition and the unregistered document to which he was signatory.
  1. The consequence of non-registration is to prohibit the document from being received not โ€œin evidenceโ€ but โ€œas evidenceโ€ of any transaction affecting such property. (Reliance placed on Muruga Mudallar and Ors. v. Subba Reddiar AIR 1951 Madras 12).ย So the document could still be received “in evidence” and marked as exhibits.

As a consequence the appeal was allowed, and the documents were allowed to be used in evidence.

๐€๐ซ๐ž ๐๐ซ๐ž-๐š๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐ข๐จ๐ง ๐’๐ญ๐ž๐ฉ๐ฌ ๐ข๐ง ๐š๐ง ๐€๐ ๐ซ๐ž๐ž๐ฆ๐ž๐ง๐ญ, ๐Œ๐š๐ง๐๐š๐ญ๐จ๐ซ๐ฒ?

In the case of M/S SANJAY IRON AND STEEL LIMITED v. Steel Authority of India Limited (Delhi High Court, single judge, decided on 01.10.2021), the question which arose was whether a Petition under Section 11 of the #Arbitration & Conciliation Act, 1996, for appointment of an #arbitrator be allowed, incase the pre-arbitration steps in the agreement have not be followed.

The relevant clauses of the agreement between the parties are mentioned below:

โ€œClause 10: RESOLUTION OF DISPUTES: In the event of any dispute/difference whatsoever arising between the parties relating to r arising out of the tender, the parties shall endeavour to resolve such dispute through the SCOPE Forum of Conciliation & Arbitration (SFCA) New Delhi (as amended from time to time).

Clause 10.1 – Conciliation: Any dispute or difference whatsoever arising between the parties relating to or arising out of contract, may be settled by the Rules of conciliation in accordance with the Rules of SCOPE Forum of Conciliation & Arbitration (SFCA) and the settlement so rendered between the parties in pursuance thereof shall be final and binding on the parties. If the dispute is not settled by conciliation within 30 days of the initiation of conciliation or such further period as the parties shall agree in writing, the dispute shall be referred to and finally resolved by Arbitration, in accordance with the Rules of Arbitration of SCOPE Forum of Conciliation and Arbitration.โ€

Clause 10.2 Arbitration: In the event the dispute/ difference is not resolved through conciliation as per the above provisions, the aggrieved party may refer the dispute to Arbitration under the SCOPE Forum of Conciliation & Arbitration (SFCA) “New Delhi. Any dispute or difference whatsoever arising between the parties relating to construction, interpretation, application, meaning, scope, operation or effect of this contract or the validity or the breach thereof: shall be settled by arbitration in accordance with the Rules of Arbitration of the “SCOPE” Forum and the award made in pursuance thereof shall be final and binding on the parties. The venue of the Conciliation shall be at New Delhi.โ€

In this case, once disputes had arisen between the parties, the Petitioner had invoked Conciliation Proceedings as per the Agreement between the parties, which was agreed by the Respondent. Once SCOPE sent notice of deposit of fee, the Petitioner refused to deposit the said amount calling it too onerous.

After this, the Petitioner directly approached the Court under Section 11 for appointment of Arbitrator.

While deciding the application, the Court observed:

  1. Clause 10 of the Agreement makes it clear that the parties are to endeavour to resolve dispute through SCOPE Forum of Conciliation & Arbitration and if the dispute is not settled by conciliation within 30 days, then the aggrieved party may refer to arbitration, which again shall be governed in accordance with SCOPE Rules.
  1. The Petitioner had invoked conciliation, and in fact the Respondent had also tendered its consent on the invocation of conciliation proceedings through SCOPE. However, despite invocation, proceedings before the Conciliator did not commence due to non-payment of fees.
  1. A bare perusal of the dispute resolution clauses makes it manifestly clear that parties have agreed to a specific mechanism to be adopted for resolution of disputes. A party cannot dodge a contractual clause (10.1) by means of approaching the Court for appointment of arbitrator.
  1. The very purpose of keeping a conciliation clause in any Agreement is to shorten the path for settlement of disputes between the parties.

In view of the above, The Court refused to appoint an arbitrator as the Petitioner had not followed the conciliation procedure prescribed under the Act. The parties were directed to first explore settlement through conciliation in terms spelt out in Clause 10 of the Agreement and to strictly adhere to the time line and to conclude the conciliation proceedings within 30 days of initiation of conciliation proceedings. Only thereafter the disputes, if any, would be referred to arbitration.

With the aforesaid directions the Petitions were disposed off.

๐‚๐š๐ง ๐ญ๐ก๐ž ๐€๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐จ๐ซ’๐ฌ ๐๐จ๐ฐ๐ž๐ซ ๐ญ๐จ ๐†๐ซ๐š๐ง๐ญ ๐ˆ๐ง๐ญ๐ซ๐ž๐ฌ๐ญ, ๐›๐ž ๐œ๐ฎ๐ซ๐ญ๐š๐ข๐ฅ๐ž๐?

In Garg Builders v.ย Bharat Heavy Electricals Limited, (#SupremeCourtย of India, decided on 04.10.2021), the arbitrator had awarded pendent lite interest, despite there being a barring clause under the Contract between the parties.

the contract clause involved was as below:

โ€œClause 17: No interest shall be payable by BHEL on Earnest Money Deposit, Security Deposit or on any moneys due to the contractor.โ€

It was argued on behalf of the Appellants, that such a clause is against the provisions of Section 28 of the India Contract Act, 1872, and must be declared void.

The Court observed as follows:

  1. If the contract contains a specific clause which expressly bars payment of interest, then it is not open for the arbitrator to grant pendente lite interest. (Reliance placed on Bharat Heavy Electricals Limited v. Globe HiยญFabs Limited (2015) 5 SCC 718 and Sri Chittaranjan Maity v. Union of India (2017) 9 SCC 611, Distinguished Ambicaย Constructionย v.ย Unionย of India (2017) 14 SCC 323).
  1. Section 3(3)(a)(ii) states that the Interest Act will not apply to situations where the payment of interest is โ€œbarred by virtue of an express agreementโ€.ย Therefore, once there is an express statutory permission to parties to contract out of receiving interest, Contract Clause 17 cannot be said to be ultra vires Section 28 of the Indian contract Act. As a result, it is not open for theย #Arbitratorto grant pendente lite interest in violation of the aforesaid contract clause.

On the said grounds, the appeal failed and was dismissed.

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